What is EIS Tax Relief – a Simple Guide for UK Investors

Enterprise Investment Scheme (EIS) Tax Relief Explained

When talking about the tax reliefs offered through the EIS, we’re referring to the tax reliefs that investors may be eligible for when they purchase the shares of an EIS qualifying company.

The scheme was designed to stimulate investment to support early-stage, higher-risk UK companies that may have limited access to traditional sources of finance. These businesses often find it hard to get help from banks or public markets, which usually leaves private investors as one of a few options.

Eligible investors can benefit from several tax reliefs, including:

• Income tax relief
• Capital gains tax relief
• Deferral relief
• Loss relief
• Inheritance tax relief

Combined, these tax reliefs make EIS investments an option for investors, although there is still plenty of risk to consider.

This is changing from April 2026. It is being capped at £2.5m. Above that level, relief is expected to apply at 50%, which at a 40% IHT rate produces an effective 20% IHT charge on the excess.

How EIS Tax Reliefs Work in Practice

First of all, it’s important to understand that investors do not just get a single tax break, but a number of different tax reliefs. They all come into play at different stages of the investment and with their own rules and requirements. The sections below outline how these EIS reliefs work on their own and as a collective, we’ll give you a brief but accurate description of each.

This is changing from April 2026. It is being capped at £2.5m. Above that level, relief is expected to apply at 50%, which at a 40% IHT rate produces an effective 20% IHT charge on the excess.

30% Income Tax Relief on EIS Investment

Of them all, the EIS income tax relief is what will stand out to many investors the most.

• Investors can claim income tax relief of up to 30% on the amount they invest
• The relief will usually only apply to investments of up to £1 million per tax year. However, that can increase to £2 million if at least £1 million of that amount was invested in what’s called Knowledge Intensive Companies.
• To qualify for the income tax relief, you must hold the EIS shares for a minimum of three years. Failing to hold the shares for the minimum period may result in investors being required to repay any reliefs already provided.

Capital Gains Tax Exemption

Following the income tax relief is a capital gains tax exemption, which can apply to any gains made once you sell the company shares.

• Once you’ve held the EIS shares for at least three years, they qualify for the CGT exemption.
• Any gains made when selling the shares are exempt from capital gains tax.

Therefore, if you sold your shares for a gain, you wouldn’t have to pay the 18% (basic rate) or 24% (higher rate) that’s normally charged.

Capital Gains Tax Deferral Relief

If you have other assets, you’re also able to claim capital gains deferral relief. When you sell those assets, you’ll not have to immediately pay the CGT that is owed on the gains. The catch, however, is that to qualify for CGT deferral relief, the gains you make when selling the assets must be invested through the EIS scheme.

As long as you hold those shares, the CGT is deferred. It only becomes payable once you sell them or the company no longer qualifies for the Enterprise Investment Scheme.

Inheritance Tax and EIS Shares

If you’re looking for ways to diversify your inheritance planning strategy, the Enterprise Investment Scheme is one of many options. Upon death, if you’ve arranged for a beneficiary to receive your EIS shares, they come without the usual 40% inheritance tax applied.

Just note that to qualify, you must have held the shares for a minimum of two years before your death.

This is changing from April 2026. It is being capped at £2.5m. Above that level, relief is expected to apply at 50%, which at a 40% IHT rate produces an effective 20% IHT charge on the excess.

Loss Relief – Reducing Downside Risk

EIS investments are high risk, and not all companies succeed. To help offset this, EIS offers loss relief if an investment fails.

If an EIS investment is sold at a loss (or the company becomes insolvent), the investor can offset that loss against:

• Income tax, or
• Capital gains tax

The amount of loss relief available depends on the investor’s marginal tax rate and whether income tax relief was originally claimed.

What are EIS Shares?

The company must issue EIS shares, which are:

• Newly issued ordinary shares
• Fully paid up in cash
• Held at risk (no preferential rights or capital protection)

As per the investor qualifying rules, investors are not allowed to be connected to the company, whether that’s through employment, shareholdings or other specific business relationships.

This is not an exhaustive list and companies should check the most recent legislation.

Company Qualification for the EIS

For companies that wish to raise capital, they must meet the following criteria to qualify for the Enterprise Investment Scheme:

• Must be based in the United Kingdom.
• Must have made their first commercial sale within the last seven years.
• Must not employ more than 250 people.
• Cannot be listed on any stock exchange.
• Does not control any other companies aside from its own qualifying subsidiaries.
• It is not owned by another company or has 50% of its shares owned by another company.
• Must carry out an EIS qualifying trade.
• Must use the investment on a qualifying business activity within two years.

This is not an exhaustive list and companies should check the most recent legislation.

Knowledge Intensive Companies (KICs)

Companies labelled ‘knowledge-intensive’ receive different treatment via the EIS scheme. Essentially speaking, these are young and innovative companies that invest their resources into research and development of ground-breaking technology or drugs. For example, a company that is working on a more effective treatment for diseases would be classed as knowledge intensive.

On top of that, the HRMC sets specific requirements for a business to qualify as a KIC. For starters, it must employ highly-skilled workers and spend a significant amount of money on R&D.

A company that does qualify as a KIC can:

• Receive up to £10 million investment per year through EIS
• Receive up to £20 million across its lifetime through the EIS

As for individual investors, while they’re normally limited to investing a maximum of £1 million per year into an EIS-qualifying company, they’re allowed to up that to £2 million, as long as anything above the original limit is invested in KICs.

Below are some of the most important criteria for a company to qualify as a KIC:

• The company must be carrying out research, development or innovation.
• Must have made their first commercial sale within the last ten years, or had a turnover of over £200,000 in that time.
• Must not employ over 500 people.
• To continue qualifying, the company must show that 20% of its employees, with a Master’s or higher degree, have carried out research for a minimum of three years since the date of investment.
• Must spend at least 10% of its operating costs on research, development or innovation for three years, or at least 15% for a single year.

This is not an exhaustive list, and investors should check the most recent legislation. These rules are changing from April 2026. It is being capped at £2.5m. Above that level, relief is expected to apply at 50%, which at a 40% IHT rate produces an effective 20% IHT charge on the excess.

EIS Compared to Other Venture Capital Schemes

EIS is not the only government-run initiative in the UK that supports early-stage businesses. There are several more, with each designed to suit different types of investors. Below, we’ll give you a summary of some of the most popular.

Seed Enterprise Investment Scheme (SEIS)

As the name suggests, the Seed Enterprise Investment Scheme is very similar to EIS, although now the focus is on very early-stage companies, most typically, new start-ups.

How it differs from EIS:

• SEIS income tax relief is higher at 50%
• Companies can only receive up to £250,000 investment annually.
• Investors can make a maximum investment of £200,000 annually.
• The SEIS has a higher overall risk profile due to the companies being young start-ups.

Social Investment Tax Relief

Social Investment Tax Relief (SITR) is designed to encourage investment in social enterprises.

Although narrower in scope than EIS, it provides income tax relief and capital gains deferral for investments that generate measurable social impact alongside financial returns.

Venture Capital Trusts and Venture Capital Investment

Venture Capital Trusts (VCTs) work differently from both the EIS and SEIS investment schemes. Rather than investing directly in a company, you’re investing in a fund that invests in many companies at the same time.

Unlike EIS:

• VCTs are traded on a stock market
• Investors benefit from diversification
• Dividends are tax-free, but capital gains exemptions differ

The Takeaway

The EIS offers several tax reliefs in the United Kingdom, but there’s a big reason why. As EIS investments are high-risk.

If you’re considering investing through an EIS fund, we strongly suggest you seek financial advice before you go ahead. It is vital to do due diligence, think long and hard about whether the investment is the right one, and whether it is worth the risk.

However, used correctly, the EIS can prove to be a useful tool that allows investors to support UK businesses while also managing their tax exposure effectively.

EIS Tax Relief FAQ

Who is eligible to claim EIS tax relief?

Anyone who is a UK taxpayer who is not employed or connected to the company they invest in can qualify for the Enterprise Investment Scheme, so long as they have the appropriate tax liabilities. These are subject to individual circumstances.

How long do I need to hold EIS shares to keep the tax reliefs?

For most tax incentives, such as EIS income tax relief and capital gains relief, you must hold the shares for a minimum of three years to qualify. The exception is inheritance tax relief, which requires you to keep them for at least two years.

Can I claim relief if the investment fails?

Yes, but only loss relief that allows you to offset up to 45% of your net losses (minus any received income tax relief) against your income tax or CGT bill.

How do I actually claim EIS tax relief?

Once HMRC has approved the share issue and you have purchased them upfront, you should receive an EIS3 certificate. You will need to submit this when filing your self-assessment tax return so that you receive your EIS tax reliefs.

Can EIS tax relief be used alongside other venture capital schemes?

Yes, investors can use EIS alongside SEIS and venture capital schemes. However, you cannot use each scheme to make the same investments.

Important Information – This article is provided for information purposes only and does not constitute investment advice, tax advice, or a personal recommendation. You should not rely on this information when making an investment decision. Tax reliefs are subject to legislation, may change, and depend on individual circumstances. Eligibility for EIS reliefs depends on the company continuing to meet qualifying conditions and may be withdrawn. EIS investments are high-risk, illiquid, and you may lose some or all of your invested capital. These investments are not suitable for all investors. You should seek independent financial and tax advice before investing.